Multi-state Tax Management

On June 21, 2018, landmark case South Dakota v. Wayfair, Inc. enabled states to tax remote sellers. This was a major victory for state taxing authorities. The online seller—not so much. For most online sellers prior to this ruling, they were only responsible for paying sales and use taxes to the state where they had a physical economic nexus or physical presence. One state taxing authority. One state tax. Simple. Yes, it was. Now, remote retailers have to register, know the taxing rules, collect sales tax, and pay sales tax for each state. And on top of all of that, adoption for most states occurred within a 6-month timeframe. Overwhelming, right?

Large corporations had the manpower and support to file sales and use tax in various states and most likely were already doing that. Filing sales tax returns by state is taxing, literally, on remote retailers, especially small businesses, that have only had to ever file state taxes in one state. The states taxing authorities get it. While they want the additional tax revenue, they don’t want to unjustly burden the smaller remote sellers. So, many have minimum sales or number of transactions amount that a company must meet in order to be required to pay tax. While this alleviates the pain of paying each state, it still doesn’t resolve the issue of understanding individual state rules and filing separately for each state.

Here are few options for you to consider when it comes to managing state taxes.

  1. Manage your own states taxes—I just heard your long sigh, but this method is really not that bad if you’re just starting out or sales outside of your home state, where you have a physical presence, consistently fall below state remote seller thresholds. As a frame of reference for those considering this option, one of the most common state thresholds is gross sales in excess of $100,000 or 200 or more separate transactions in the previous or current calendar year.  To make sure you stay current on state minimums, consider signing up for a tax service that notifies you of changes to state tax laws.
  2. Use the Streamlined Sales and Use Tax system – This option essentially, as its name states, streamlines the state tax process. Via the use of the Streamlined Registration System, a business owner can the register, report, and remit state sales tax for 24 states. These states include:
Arkansas Kentucky New Jersey Rhode Island W. Virginia
Georgia Michigan North Carolina South Dakota Wisconsin
Indiana Minnesota North Dakota Utah Wyoming
Iowa Nebraska Ohio Vermont Tennessee*
Kansas Nevada Oklahoma Washington  

*Associate Member State

You have the option to do-it-yourself or use a Certified Service Provider (CSP), an agent certified under the Streamlined Sales and Use Tax Agreement to manage a business’ sales and use tax functions, excluding payment which is still the responsibility of the remote seller. Check out https://www.streamlinedsalestax.org/home to learn more about this system and to see if your business qualifies for free CSP services.

  • Outsource your state sales tax function – If management of state sales tax has become a burden, outsource it! Your focus is to concentrate on doing what you do best—providing your service or product. Let a tax expert worry about state registration, minimum filing requirements, monthly/quarterly/annual payments or information notices, and state taxing authority notifications. While anyone can outsource, it’s definitely time to consider this as a viable option when your sales exceed state minimums in several states.

You can mix or match or go all in with any of these options. How has this landmark case affected your business? What is your company doing to manage the state tax process? Tell us about it.